Justia Legal Ethics Opinion Summaries

Debtor was unable to pay $70,000 attorney fees accrued over several years. The attorney continued to provide legal services. In May 2008, Debtor gave the attorney possession of the titles to a 1954 MG and a 1977 Ferrari as security. There was no written security agreement. When a bank began putting pressure on Debtor, she turned over possession of the vehicles in 2012. Debtor did not sign over the titles or complete assignment of ownership forms until six days before Debtor’s Chapter 7 bankruptcy filing. The vehicles were not in working order. The attorney had some repairs done and sold the vehicles to a third party for $40,000 in November 2013. Eight months later, the Chapter 7 trustee filed an adversary complaint, 11 U.S.C. 547(b). The bankruptcy court concluded that the attorney did not have a valid or perfected attorney lien under Ohio law and that the transfer occurred within the look-back period for avoidance. The bankruptcy court granted the trustee judgment for $32,000, plus prejudgment interest. The Sixth Circuit Bankruptcy Appellate Panel affirmed, upholding the determination of value. The transfer was preferential; the bankruptcy court found unsecured creditors would receive no distribution, so the attorney received more than he would have in the Chapter 7. View "In re: Hadley" on Justia Law

The bankruptcy court imposed Rule 9011 sanctions against attorneys stemming from their representation of debtors in an adversary proceeding in which a creditor and the trustee sought denial of discharge. The attorney filed notice of appeal regarding the sanctions order. The bankruptcy court subsequently set the amount of sanctions and, days later, amended that order and imposed additional sanctions under 28 U.S.C. 1927. The Sixth Circuit Bankruptcy Appellate Panel first denied motions to dismiss an appeal, holding that it had jurisdiction because the amount of sanctions was set forth in a final order. Notice of appeal was timely filed. Resolution of the sanctions issue will have no discernable impact on the pending discharge issue. The Panel subsequently vacated the sanctions order. In seeking the sanctions, the creditor did not comply with Rule 9011’s “safe harbor” notice requirement and the exception to that requirement did not apply. The bankruptcy court also erred as a matter of law in concluding that the attorney’s “shadow representation” of the debtors vexatiously and unreasonably multiplied the proceedings. In a separate opinion, the Panel upheld the bankruptcy court's ultimate denial of discharges.. View "In re: Blasingame" on Justia Law

Plaintiff filed suit alleging that the Florida Supreme Court unlawfully denied her application to become a member of the Florida Bar in violation of federal bankruptcy law and her right to due process. The district court dismissed the complaint. The Florida Supreme Court denied plaintiff admission to the Bar based on her lack of candor and refusal to repay her financial obligations. The court concluded that the district court lacks subject matter jurisdiction over plaintiff's 11 U.S.C. 525(a) claim; sovereign immunity bars plaintiff's due process claim because the Florida Supreme Court is a department of the State of Florida; and the Ex Parte Young exception is not applicable in this case. Accordingly, the court affirmed the judgment. View "Uberoi v. Supreme Court of Florida" on Justia Law

Illinois attorney Jahrling was contacted and paid by attorney Rywak to prepare documents for the sale of 90-year-old Cora’s home. Rywak’s clients paid $35,000 for Cora’s property, which was worth at least $106,000 and was later resold by the purchasers for $145,000. Cora later alleged he understood that he would keep a life estate to live in the upstairs apartment of the home rent-free. Jahrling’s sale documents did not include that life estate. Jahrling and Cora could not communicate directly and privately because Cora spoke only Polish and Jahrling spoke no Polish. Jahrling relied on counsel for the adverse parties for all communication with Cora. After the buyers tried to evict Cora, Cora sued Jahrling in state court for legal malpractice. After a partial settlement with a third party and offsets, the court awarded Cora’s estate $26,000, plus costs. Jahrling filed for Chapter 7 bankruptcy protection. Cora’s estate filed an adversary proceeding alleging that the judgment was not dischargeable under 11 U.S.C. 523(a)(4) because the debt was the result of defalcation by the debtor acting as a fiduciary. The bankruptcy court found in favor of the estate. The Seventh Circuit affirmed.Jahrling’s egregious breaches of his fiduciary duty were reckless and the resulting malpractice judgment is not dischargeable. View "Jahrling v. Estate of Cora" on Justia Law

The Hargers were Jones’ neighbors. Police reports indicate that there were issues between the neighbors for several years. Grad worked for CarMeds, ostensibly owned by Jones’ mother and run by Jones, occasionally visiting Jones’ home. Grad claimed to have been assaulted after such a meeting. At the police station, Grad identified Harger from a photo line-up. Ultimately, charges were dropped. The Hargers sued Grad and Jones, asserting conspiracy to have Harger falsely arrested. Meanwhile, Jones filed a Chapter 7 bankruptcy petition. Hoover, the Hargers’ attorney, moved to modify the automatic stay and filed an adversary complaint, alleging that Jones's debt was non-dischargeable and seeking denial of discharge based on the assertion that Jones lied about the ownership of CarMeds. The bankruptcy court later dismissed the adversary proceeding on the Hargers’ motion, and set a hearing sua sponte, directing the Hargers and Hoover to show that they had reasonable grounds for filing. The court found that Hoover violated Rule 9011 by filing without specific evidence and made intentional misrepresentations in his filings; directed him to pay $26,000 in attorneys’ fees; revoked Hoover’s electronic bankruptcy filing authority; and referred the matter for possible prosecution. The Sixth Circuit Bankruptcy Panel reversed, holding that the bankruptcy court relied on clearly erroneous factual findings ;erred as a matter of law in awarding fees on a sua sponte basis; and abused its discretion in imposing any sanctions. View "In re: Jones" on Justia Law

The Company was organized as a limited liability company in 2007; its sole managing member was another LLC, whose sole members were the Ngs, who controlled and managed the Company. Defendant was one of the Company’s lawyers. The Company’s stated purpose was to serve as an investment company making secured loans to real estate developers. The Managers actually created the Company to perpetrate “a fraudulent scheme” by which the Company transferred the money invested in it to another entity the Managers controlled. Defendant knew that the Managers intended to and did use the Company for this fraudulent purpose and, working with the Managers, helped the Company conceal the nature of its asset transfers. The Company was eventually rendered insolvent and its investors filed an involuntary bankruptcy petition. The bankruptcy trustee filed suit against Defendant, alleging tort claims based on Defendant’s involvement in the Company’s fraud. Defendant argued that the claims are barred by the in pari delicto doctrine. The court of appeal affirmed dismissal, finding that the in pari delicto applies to the trustee and rejecting an argument that the doctrine should not bar her claims because the wrongful acts of the Managers should not be imputed to the Company. View "Uecker v. Zentil" on Justia Law

Mark Lazzo served as legal counsel for Schupbach Investments, L.L.C. in its Chapter 11 bankruptcy case. After confirming a liquidation plan for the debtor, the bankruptcy court entered a final fee order approving certain disputed fee applications Lazzo filed. Creditor Rose Hill Bank and Carl B. Davis, the trustee of the Schupbach Investments Liquidation Trust, appealed the final fee order to the Bankruptcy Appellate Panel (BAP). The BAP reversed those portions of the bankruptcy court’s order that: (1) confirmed post facto approval of Lazzo’s employment, and allowed fees incurred prior to approval of his employment; and (2) allowed postconfirmation fees. The Debtor, Lazzo, and his law firm, Mark J. Lazzo, P.A. appealed the BAP’s decision. Finding no reversible error, the Tenth Circuit affirmed. View "Davis v. Schupbach Investments" on Justia Law

W. Steve Smith, trustee of a complex Chapter 7 estate, appealed the bankruptcy court's removal of him as trustee. Smith also appealed his removal from all of his other pending cases. Smith had traveled with his wife and children to New Orleans for an oral argument related to his work as trustee, billing the the firm for work that included estate funds for trip expenses. The district court affirmed. The court concluded that the bankruptcy court applied a proper legal standard, and its determination that Smith’s conduct violated that standard was not clearly erroneous. Therefore, the bankruptcy court did not abuse its discretion in finding cause sufficient to remove Smith as trustee. The court rejected Smith's notice argument as well as his as-applied constitutional argument to section 324(b) of the Bankruptcy Code. Finally, the court's ruling moots the issue of whether the bankruptcy and district courts wrongly refused to stay his removal pending appeal. Accordingly, the court affirmed the judgment. View "Smith v. Robbins" on Justia Law

A Chapter 7 petition was filed against Connolly in 2001. Shapiro, then the bankruptcy trustee, initiated an adversary proceeding. In 2007, the bankruptcy court concluded that Shapiro and his attorney had breached their discovery obligations due to gross negligence and dismissed Shapiro’s claims with prejudice. Connolly’s unsecured creditors, including Coface, successfully sought to remove Shapiro as trustee. French, Shapiro’s successor, then commenced an adversary proceeding against Shapiro, his law firm, and his professional-liability insurer. The parties reached a court-approved settlement. The bankruptcy court recognized that at least some of the work that Coface paid its attorneys to do substantially benefitted the bankruptcy estate and the unsecured creditors, and contributed greatly to a significant increase in funds that unsecured creditors would receive. Coface sought reimbursement of $164,336.28 in attorney fees and costs under 11 U.S.C. 503(b). The bankruptcy court denied Colface’s motion. The district court agreed. The Sixth Circuit reversed, holding that administrative expenses are allowable in these circumstances under section 503(b) in a Chapter 7 case. Denying creditors reimbursement of administrative expenses in such circumstances would disincentivize participation in the bankruptcy process and would impugn the fundamental notion of bankruptcy as equitable relief View "Coface Argentina v. McDermott" on Justia Law

Investors in Central Sleep filed suit against the company, Dachman, its promoter, and others, claiming fraud, RICO violations, conversion, fraudulent conveyance, civil conspiracy, and securities fraud. Dachman was also convicted for his fraudulent conduct. He spent the funds he stole from investors on a tattoo parlor, vacations and cruises, a new Land Rover, rare booksm and to fund personal stock trading and gambling. Goodman represented the defendants. A judge ordered Central Sleep into receivership and issued a stay against “all civil legal proceedings” involving the defendants. The receivership closed; victims received pennies on the dollar. Goodman obtained a judgment for unpaid legal fees and submitted a claim, but also filed a lien against the proceeds of the Dachmans' state court medical-malpractice lawsuit. Neither Goodman nor the Dachmans informed the receiver or the judge of those proceedings. The receiver learned of the malpractice suit and recovered the settlement proceeds. When the receiver proposed a distribution plan, Goodman argued that his lien entitled him to be paid in full from the malpractice suit proceeds, rather than pro rata from the receivership estate like other creditors. The judge offered Goodman the opportunity to post a bond to delay distribution, pending appeal. Goodman did not post a bond. The judge approved the plan and the funds were distributed. The Seventh Circuit affirmed and granted the receiver’s motion for sanctions against Goodman. View "Duff v. Central Sleep Diagnostics, LLC" on Justia Law